Mobile Money Business Models

1. Mobile Money Business Models Payment Innovations Working Group April 2012

2. Why discuss business models? • Better understand the different roles NGOs can plan in the mobile money field. • Apart from being a consumer of the service, NGOs also play other roles in the role out and development of mobile money services • Forging strong partnerships with private sector stakeholders • Understanding private sector’s motives in mobile money, in order to better align your own organization’s priorities with potential partners • Due diligence when selecting a partner is key • Business models vary in each case • We will discuss the three core business models for mobile money, but as the field develops, joint ventures are becoming more common

3. Three Core Business Models • MNO-Led Model • Mobile network operator acts as de facto “bank”. This model places most of the regulatory responsibility on the MNO. • Bank-Led Model • Financial services offered from a bank to their account holders through a network of agents • Independent Model • Independent companies that often times establish a joint venture with MNO or Bank to meet a specific demand not currently being met

4. Mobile Money transfer Value chain

5. MNO–led models And how NGOs can engage

6. Why? MNO-Led Business drivers • MNO incentives for offering mobile money services • Reduced costumer churn (product differentiation) • Better brand positioning • Reduced distribution costs (ex. Printing of airtime scratch cards) • Additional revenues from mobile transactions • Providing evidence of good citizenship (In the eyes of regulators and clients) • MNO barriers to entry into mobile money • MNO product cycles are traditionally 3-6 months, mobile money products can be cash flow positive in three years(M-Pesa) • MNOs face uphill regulatory process with central banks • CEO of company is not interested. Leadership from the executive suite is crucial for mobile money success • Segmented market share • Achieving scale and active accounts

7. Who?Profile of MNOS who take a product to market • MNOs who decided to enter the mobile money market • Had no less than 30% of the voice market • Existed in markets that had 20-60% mobile penetration • Already had an extensive air time merchant network • Were willing to take on big up front investments and often times “leave money on the table” in the short term • Had strong and positive executive leadership • Made a strong marketing push for the product • Wanted to reduce their churn through product differentiation

8. First Movers– Market share and mobile penetration CGAP, April 2011, Five Business Case Insights on Mobile Money

9. What? MNO-Led Model traits • MNOs manage any and all relationships with formal financial institutions, and are responsible for regulatory compliance • Agent approval is done through the MNO • Client Know Your Costumer (KYC) is often times done through an agent. • Range of products, including P2P (ex. remittances), B2P (ex. salaries) and P2B (ex. Bill Pay) • MNO is required to hold mobile money float in a regulated financial institution Mobile Money Transfer Value Chain MNO

10. Advantages and Challenges for MNO-Led Model • Advantages • Brand recognition and trust • Very well developed distribution market through voice clientele • Self funded model • Flexibility in KYC process • Familiar market segments • Extensive agent networks provide better access • Challenges • Lack of familiarity to financial services sector • Regulatory barriers • Heavy upfront investment • Lack of short term profits • AML/ATF issues • Establishing scale • Heavy agent and end user capacity building costs

11. How?Ngo engagement • Linking MNO needs to NGO program goals • NGO Engagement • Innovative NGO products that offer new services to clients • NGOs have a strong rural footprint and understand that market well • NGOs are often times implementing partners for pilots • Training agents can also help improve financial services access • NGO programs that disburse funds on a regular basis to beneficiaries is of interest to MNOs • NGOs can provide MNOs a more socially responsible image • MNO Needs • Product differentiation • Better understanding markets • Risk mitigation through pilots and testing of models • Agent and end user training • Repetitive payment streams that provide scale and consistency • Meeting CSR goals Examples: JuhudiKilmoMFI, PACT governance program

12. Bank–led models And how NGOs can engage

13. Traits of Agent banking models • Bank as a driver of the service • Path to full financial inclusion and financial footprint • Service linked to a bank account at financial institution (may mean interest-bearing deposits, possibility for more sophisticated financial services, etc.). • Real-time settlement of transactions linked to bank account • May use POS, mobile as device– innovation here is the economics related to the agent model and new financial products • Deposit insurance

14. Players in agent banking • Financial institution (commercial bank, MFI, etc.) • Agents: typically look like MNO-led models– small mom and pops, pharmacies, etc. May also use third parties. Typically proprietary. May also use “roving agents • Clients– linked to bank account or special accounts for low-income groups • MNOs in many cases

15. activities • Transactional account most common (bill pay, loan repayment, etc.) • Depending on regulation, may do account opening at agent level. Typically will be a lower-value account • Increasingly, services such as insurance, loans are offered through mobile • May enable B2B activities such as salary or bill payments for businesses • Increasing value for banks related to G2P payments • In addition to transactions, may drive potential clients to sign up in branch • Airtime top ups

16. Business drivers • Accessing new markets (client segments and geographies) • New revenue streams (bill pay, G2P, transactions, cross-selling etc.) • Decongesting bank branches • Cost savings (particularly compared to ATMs) • Additional motivations for linking with existing mobile money systems (although not traditionally bank-led): new service for clients, operational efficiency, fraud reduction, etc. • Many banks are also doing this as a competitive and reactive measure, although sustainability of this as a motivator is limited

17. Advantages & Challenges • Lower cost than brick and mortar branches • Potential revenue driver, competitive posturing • Unlocking future customer segments • Retain advantage in financial services space vs. MNOs • May not have experience managing agents • Loss of brand control and building trust • May be completely new, unfamiliar client segments—training, product development, etc. • Not in line with banks’ traditional business models (low value, high volume transactions) • KYC and registration in some countries • Large, upfront costs • Perception of banks • Managing customer experience • Potential for increase in fraud • Maintaining active accounts

18. NGO engagement • Programming to link up with formal accounts • G2P payments • Additional financial services such as insurance and loans • Can be card based, which helps in areas of low mobile penetration, low literacy, etc. • It remains to be seen whether bank-led models "outlive” MNO-led, but financial services is within the core business of banks and reflects their expertise • Examples: • Mercy Corps and BanKO in Philippines • MEDA in Nicaragua • Save the Children and UBL in Pakistan • What are some other areas to engage?

19. Independent models New Business Models for Mobile Money

20. WhY? • Business Drivers • MNO- and Bank-led models have strengths but also weaknesses, as we have seen • Other players see business opportunity to fill existing gaps in the market • Gaps include: • Interoperability • Product Development • Demand for customized services • Regulation • Often requires a bank partner

21. Credit: Ben Lyon Source: http://technology.cgap.org/2012/01/30/customer-level-interoperability-a-story-of-two-mobile-handsets/

22. who? • Often call 3rd party or Hybrid Models • Joint Ventures • Eko India (http://www.boardofinnovation.com/2011/05/02/eko-india-banking-for-the-poor-via-mobile-and-local-stores/) • MobiPay, Georgia • Start-ups • Mobile Transactions Limited, Zambia • Splash, Sierra Leona • M-Peso, Nicaragua • Beam India (pre-paid)

23. What? • Often look like MNO-led models • Rely on agent network (often independent, rather than retail outlets) • May or may not partner with existing MNO or bank • Range of products including P2P and B2B • Outside funding from investors • Smaller reach than MNO or bank models (not always) • Value-added services • Starting to blur the line completely between MNO & Bank-led • Ex: Telenor Pakistan investment inTameer Microfinance Bank

24. ProS & cons • Disadvantages • Lack of Brand recognition • Lack of Distribution network • Funding • Regulation • Advantages • Independence • Creative products • Flexible partner • Clear mission • Fewer partners to split revenue (could mean lower prices and/or higher commissions)

25. How? Ngo engagement • Need to carefully access the capability of an independent company (which may be less clear than established bank or MNO) • Ex: M-Peso in Nicaragua • Worth considering, especially for smaller projects not of interest to large MNOs • Workforce development & Livelihoods programs • Ex. Splash/IFC • Private Sector development programs • Increase competition and support for SMEs • Not an option in every country • Good for voucher programs • Ex: Mobile Transactions Limited Zambia

26. NGO engagement Overview Process and Roles

27. NGOs–Tips for engaging mobile money partnerships • Not everyone will be a good partner– often times your market may not be their traditional market. • Understand the gaps NGOs will need to fill to complete this program– KYC registration, training, etc… • Understand the partner gaps that will need to be filled • Understand that partners have commercial motivations, and try to align them with your own • Personality and connection are important • Look to promote/ suggest engagement that is familiar to them– i.e., cash for work payments may equate to salary payments • Determine what data you can receive from technology platform, and gage your partner’s willingness to share it • In the end, make absolutely sure everything fits within your program’s goals. • Sometimes more traditional methods of disbursing funds will be best, mobile money is not a silver bullet

28. Roles of NGO • Roles: • Consumer • Advisory (including product development and market knowledge) • Training and education • Deployment accelerator • Facilitator/Broker • Contribute to private sector CSR goals

29. Questions and Answers Thank You Cameron Peake cpeake@dc.mercycorps.org Chrissy Martin cmartin@meda.org Hamilton McNutt hamilton.mcnutt@nethope.org